UMS HOLDINGS LIMITED
558.SI
UMS Holdings Ltd - Looking forward to FY17
- 2Q16 net profit in line as better cost control mitigated sales decline.
- 1 Sct DPS declared (in line with traditional practice).
- We expect better 2H16 results.
- Risks include more competition as AMAT looks to diversify its suppliers base.
- Upgrade to Add (S$0.63 TP, 1.38x FY16 P/BV) on better 2H16 and FY17 outlook.
2Q16 in line
- 2Q16 net profit was in line at 27% of our full-year forecast. 1H16 net profit made up 48% of our FY16F.
- Although sales fell 25% yoy in the second quarter, cost control measures helped to mitigate the impact of lower sales.
- Gross material margin was maintained at ~ 58%, similar to that of 2Q15 but slightly lower than 1Q16.
- A 1 Sct DPS was declared and the company remained in a net cash position of S$34.2m, with just S$1.2m of short-tern bank borrowings.
Outlook
- On outlook, we note that UMS is positive on 2H16 which is in line with the current industry newsflow. In particular, we note that key customer Applied Materials (AMAT) has highlighted that it received its highest orders in the past 15 years and is also currently enjoying its highest order backlog of the past 9 years. This bodes well for UMS.
- Industry forecaster, SEMI, also said that 19 new fabs and lines are expected to begin construction in 2016 and 2017.
Key risks
- Customer dependency is the key risk as AMAT accounts for c.90% of sales. For the first time since we initiated coverage on UMS in 2010, the company highlighted increased competition from other regional players. This, coupled with the maturing of AMAT’s Asian operations, suggests that UMS’s share of the better margin components (consumables) business could be under pressure.
- AMAT’s desire to diversify its supplier base may have some bearing on an important contract renewal in 2016.
Upgrade from Hold to Add
- Although we cut FY16 core EPS by 6.8% to factor in lower contribution from higher margin component sales, we are still expecting a stronger 2H.
- On the risks highlighted, we believe UMS will vigorously defend its production share with AMAT.
- With still limited replacement capex, dividends are not at risk and if industry forecasts materialise, FY17 could once again be a boom year for UMS.
- Upgrade to Add, with a TP (S$0.63) still based on 1.38x FY16 P/BV.
William TNG CFA
CIMB Research
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http://research.itradecimb.com/
2016-08-12
CIMB Research
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